Back in May, I wrote that organic food distributor (and Action Alerts PLUS holding) WhiteWave Foods (WWAV) was about to move higher based on its bullish chart pattern. The stock had just completed an inverted head-an- shoulders formation, which projected WhiteWave to the low-$50 range.
At the time, I mentioned that the company would be a good acquisition target for an established company that wished to gain a strong foothold in the fast-growing organic space. I mentioned that General Mills (GIS) seemed like an ideal suitor for WhiteWave.
Now that French dairy company Groupe Danone S.A. has made an all-cash, $12.5-billion bid for WhiteWave, are there any other names in the food industry -- organic or otherwise --that might make attractive takeover candidates?
Hain Celestial Group (HAIN) is an obvious choice, so much so that the stock gapped higher yesterday on the WhiteWave announcement. Like WhiteWave, HAIN is a player in the fast-growing organic and natural foods segment. Yesterday, HAIN came within two cents of its year-to-date high before pulling back.
Over the past six months, HAIN has been trending higher, evidenced here by a bullish trend line (diagonal line). That trend line, when combined with a line connecting the stock's recent highs, helps to form a bullish triangle pattern (dotted lines).
The bullish trend line closely matches HAIN's 50-day moving average (blue), which crossed above its 200-day moving average (red) in June. That crossover formed a golden cross (shaded yellow), a bullish momentum indicator.
Since HAIN's market capitalization is just $5.1 billion, it easily could be swallowed by a larger suitor. While the stock isn't cheap, by many metrics it is less expensive than WhiteWave was prior to the Danone takeover bid.
HAIN trades at 25.34x trailing 12-month earnings and 22.50x next year's anticipated earnings. The stock's price-earnings to growth (PEG) ratio is 1.71; a PEG of 1 is considered fairly valued, but premiums are commonly granted to companies in fast-growing industries. Sales of organic foods are expected to grow annually at 16% through 2020, according to a report from TechSci Research.
What's the play? HAIN's 50-day moving average, currently near $48, is the key. Aggressive traders can buy at current levels, while patient investors should wait for yesterday's gap to fill. If the gap fills, the stock will be near both its bullish trend line and its 50-day moving average, creating an ideal buying setup.